This article presents a top 10 list of legal issues that you should consider when negotiating outsourcing contracts with vendors of technology, ecommerce, and information management.1 Some of these issues are as old and as well understood as contract law itself and are not necessarily unique to technology outsourcing contracts. Other issues-especially those relating to intellectual property, data and information privacy and security, and vendor compliance controls-are relatively more modern, and their importance is at a premium. You should clearly address all of these issues, along with the basic concepts of who will do what and when and the allocation of liability and risk, in carefully worded outsourcing agreements that provide performance and compliance standards.

Loving the sentiment in this suggestion This issues goes wider into diversity of thinking. A procurement team asking questions about diversity of thought and attitude as well as gender and race are more likely to find the supplier with the innovative mindset so many seek but do not always find.

• Raytheon Company
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2015-02-17 09:57:56

Ugh. No. Political Correctness has no place in the economic analysis of suppliers. The only real consideration is the price,delivery, and statutory requirements of the products or services you are procuring. All other considerations should be secondary to maximizing economic utility of suppliers. Unless there is compelling evidence that "diversity" provides an economic advantage to a company.

• Chevron
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2015-02-18 20:07:38

Absolutely positively NOT! As noted below, Political Correctness (which is an endemic disease in and of itself against which I've been campaigning for the last 30 years) has no place in an economic evaluation of potential supplier.
My employer values diversity highly and I have been living and working overseas since 1997 in 7 different countries on 4 different continents. I'm also an American married to an Australian and multi-linguistic. So I am obviously neither unfamiliar nor uncomfortable with cultural diversity. But it has no place in an economic evaluation.
RE: The original article in State of Flux: I would also add that I do not agree with a purchasing company even attempting to influence (much less coerce) the makeup of their suppliers board of directors (which seems like a conflict of interest to me). I am even more strongly opposed to governments (from any country) attempting to mandate percentages for board makeup or company ownership.
This article is specifically about women on the board, but in other countries this can and has been carried over to mandated percentages for ethnic group, religious group, or tribal groups...think about that for a few minutes before voicing support for something like this. This is almost universally a recipe for inefficiency, wasted time and money, and large amounts of unnecessary hassle for all involved.
It's best to keep your evaluations of your suppliers based on their ability to provide materials and services and perform to your employer's requirements and satisfaction.

Categorization, or segmentation, has been quite pervasive for over 25 years - so there should be plenty of practical experiences to share!

Perhaps the most common tool used in this area is the Kraljic Matrix, which is a 2x2 matrix yielding four segments, often labelled as Strategic, Leveraged, Bottleneck and Tactical. With each of these segments, there are sub-strategies. Tendering, contracting, negotiation and post-award management will vary between the four segments.

From a practical perspective, the most helpful insight that I can offer is that one needs to continually remind oneself that the segmentation is driven by the commodity and not the supplier. A supplier is "strategic" because of the commodity or service they provide, and not necessarily because of the supplier themselves. Most suppliers want to be considered "strategic" and so in advising a supplier that they are not strategic, it should be underscored that the reason for the non-strategic classification is due to how the customer organization views the commodity/service and not the supplier.

If you want to discuss further, please do not hesitate in letting me know,

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2015-01-27 00:12:06

Thanks Jim for the prompt reply.

I am very interested in how 'post-award management will vary between the four segments.'

Any mechanism with regards to timely assessment on vendor's performance is available?

• IACCM
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2015-01-27 03:51:42

In the post-award phase, KPI's (Key Performance Indicators) are a vital tool. In each quadrant, KPI's will be utilized. However, the focus of the KPI's will differ.

In a Tactical relationship, on time delivery and price will be a focus.

In a Leveraged relationship, price will be a focus but TCO will generally take root in a nascent manner.

In a Bottleneck relationship, KPI's will focus on availability of supply and quality.

In a Strategic relationship, the KPI's will foster elements beyond those of time, money and quality and focus on broader relationship dimensions.

This is not to suggest that these quadrants are the exclusive domain of these KPI's. But these are the KPI's that are of greatest relevance.

• Hewlett-Packard Company
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2015-01-28 18:15:03

You might think about this problem - a lot of the lower value commercial activities seem not to take less time than the higher value activities. If you could find an efficient way to get insight to the low-value activities, but get meaningful data, you would be in a position to identify ways to streamline these activities. There are major dividends to be gained from a time-cost perspective.

That is true, last time when prices went below $65 I lost my job. I do not want to happen that again.

• Husky Energy Inc.
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2014-11-11 10:01:05

In doing a strategic SWOT analysis of the current situation of the O&G industry, one needs to look at each geo-political areas.

• Orange
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2014-11-13 07:03:30

From an IACCM point of view, it would be interesting to know which price clauses O&G contracts typically contain.
- Is pricing linked to market prices, or are they fixed over contract term, or a mix of both?
- Are all physical delivery contracts based on market, and then it is up to the parties to manage price risk via financial tools such as options and forwards?
- Are there triggers that would allow a provider to suspend or terminate delivery should the price fall below a threshold?

Would be interesting to hear from IACCM members active in the O&G sector.

• Dept of Veterans Affairs
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2014-11-18 09:09:10

While EU consumption may be flat, oil use in China has exponentially increased by a wide margin in the last decade, and shows no signs of slowing down. The current shale/fracking expansion in the US is definitely altering the previous O&G landscape, as is the expansion of IS in the oil-rich region of Iraq and Syria. OPEC's continuing production at current levels (despite the temporary drop in prices) is mystifying only if no increased military action between IS and the US is expected. If conflict increases in that region and the oil fields of Iraq remain largely untapped due to embargo or conflict, or if IS continues its expansionist actions, OPEC's production at current levels will amount to shoring up their member economies at huge losses. Still, this is near-prescient market prediction on a large scale and could not be adequately discussed or resolved in this forum.

Mr. Tardecilla correctly notes the geopolitical calculations required to provide a decent SWOT; one factor missing from current replies is Europe's complete dependence on Russian natural gas (40% and rising). Without Russian gas (as was demonstrated a few years ago), the EU is in a bind, which may partly explain their lack of response to Russia's actions in Ukraine. While jobs may fluctuate, there ar a number of geographic regions with high employment potential for those with O&G experience. With the specialization of O&G contract language, this field is full of risk, but with risk comes opportunity.

• BP
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2014-12-29 22:12:13

With regard to models used in oil and gas contracts

Oil and gas operators do use index linked pricing for commodities in service contracts for example supply of chemicals under a service contract or for drilling commodities/

For labour contracts it is common for many companies to use "should cost" models for the supply of labour to give transparency of those costs. In these models the cost is broken down into its constitute components such as actual salaries payrolls and taxes , overhead and profit. Using this transparency supply chain and the line can work with its suppliers to manage the cost cycles in our industry . For example in the current deflationary market where real cost of salaries and agency rates is reducing then charge out rates can be reduced. Also both sides can look to see where there is opportunity to reduce cost without affecting service. For example is the overhead high because there is particular requirement that the customer requests in its contract which is higher than the industry norm. In these times there is more appetite for both sides to have those direct conversations.

Even if these models are not in current contracts they can be introduced as part of negotiation during contract extensions or as part of a cost reduction initiative. Transparent and respectful negotiations are key to the success of any such programmes

Usually evaluations are broken into two separate categories which are technical and commercial. There are usually team members that are specialized in certain areas that will review the Proposal for different requirements. (ie. the contract specialist may review the commercial portion of the proposal such as pricing and breakdowns. The Engineering team may review the technical side to ensure the Contractor has quoted all items within spec and has also included all items.) Are your RFP's for Lump Sum, T&M or Unit prices?

• CGI
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2014-10-14 02:26:29

It is hard to share a general answer for this topic. It depends very much of the type of work, country and sector the customer is operating in. In the Netherlands "Best Value Procurement" is growing at Public companies. In many books are the techniques and processes described. For software development the understanding of function point analysis might help to understand the scoring of building software. And further are most evaluation processes described in the RFP.

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2014-10-14 08:05:40

I agree with your two respondents. My experience, and we consider this to be a best practice, is to do the technical evaluation first, separate from the commercial. This allows an unbiased review without people thinking about price or the price of their favorite vendor. Technical normally involves components like: HSE/Safety, technical capability, capacity, experience, past performance/recommendations, plant load, and possibly the personnel and their individual experience offered up to the project.
If you use the technical to create a weighting then the commercial evaluation can be weighted by the technical to determine the winner. This means a less technically efficient company would need to have a substantially better price than a more technically efficient one.
Examples of this kind of weighting I believe are listed in the IACCM's large Contracts reference manual.

• Forsythe and Long Engineering, Inc.
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2014-10-20 16:32:24

I also agree with the responses that have been provided in lieu of my initial response. I think it is a good practice to conduct the technical evaluation before the commercial. However, some of the technical evaluation can be conducted during the prequalification process. This may include capacity, safety, insurance, personnel, etc. If the contractor passes this stage and submits a proposal then the award may only be subject to technical requirements such as submitted equipment manufacturers, product types, and very project specific requirements. The commercial evaluation will remain the same.

The key issue is that you must be clear about the goals for Supply Chain and set metrics accordingly. Those goals must be clear and must be prioritized, otherwise you will have too many KPIs and some may prove incompatible.

The library provides guidance on Supply Chain metrics. Where I have been challenged is in finding metrics for Strategic Sourcing Managers and Category Managers. I am looking for benchmarks against which we can evaluate our own practices.

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2014-04-25 09:28:49

Further to this post, this particular manager of Supply Chain refuses to lend any guidance as far as goals or direction for the department but still would like the KPI's developed. Anyone have any suggestions on how to determine the "what" to measure. This is extremely frustrating.

• SABMiller Procurement GmbH
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2014-05-28 05:06:47

The most common KPIs for sourcing and category managers that I have encountered are based on effectiveness and efficiency:
1.how much money is saved by the individual or team over the period as a ratio of the costs to the business of that individual or team is typically the ratio for effectiveness
2.a ratio of the cost of the individual/team relative to another business measure eg. cost of FTEs in other units, proportionate to revenues, etc. is typically how efficiency is demonstrated.
The Hackett Group and Everest Group are third parties that provide benchmarking services for world class, if you're looking for external reference points against which to classify your organisation.

I am not sure what you mean by "Facilties execution services". I do have an extensive background in facilities contracting, including architect-engineer services and construction. What can I do to help you? I have separate courses on A&E and Construction contracting.

• Hewlett-Packard Company
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2015-01-28 18:09:18

It occurs to me that a Construction Services group inside the Supply Chain organization might have a functional link to the Facilities Management organization within the company, at least to the extent some of the facilities affected are under the 'corporate services' umbrella. If the construction services are being obtained in support of outbound obligations (to clients), the concerns may be very different. In the latter case, you will need to have a nexus to your customer contracts group.

it is frustrating when this happens, but yes, detail your terms in the schedules. Maybe even include a term changing the order of precedence! In reality, litigation is very unlikely, as is the chance that the NHS will claim ownership of your software. You need to consider risk probability on this.

You could consider using the Cabinet Office hotline to complain about this situation where a Government body acknowledges it is using inappropriate forms of contract. Evidence that you registered the complaint would itself add to the strength of your protection.

• IACCM
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2014-02-20 20:04:55

You might find a recent ATE titled 'The Power of No' useful. Mike Inman from TableForce Negotiation Training shared some examples of how to say no in similar situations.

www.iaccm.com/resources/

• Smith Assured
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2014-03-03 05:24:45

In your schedules, make sure you explicitly reference the framework term you are changing, and also the clause that gives precedence i.e. "Notwithstanding clause x of ....